Origin outlays $800 million on offshore WA push

Energy group Origin Energy has taken its first step to building a new growth platform, deciding to invest up to $US800 million to buy into highly prospective exploration acreage in the Browse Basin, off the north west of Western Australia.

The acreage contains the Poseidon discovery as well as other potential reserves, Origin said, with reserves estimated at 2.5-5 trillion cubic feet of gas.

''Acquiring de-risked reserves at a competitive multiple'' is the way to go, Origin chief executive Mr Grant King said, since initial reserves have already been delineated with the partners now focusing on development options.

Origin said it will go to shareholders to raise $1 billion to fund the acquisition, although the purchase is aimed at positioning the group for the surge in cash that will flow once its Queensland export gas project is throwing off cash estimated at $1 billion a year to Origin for its share from around 2017-18, since the cash needed to fund any development will be needed after that time.

Origin is to outlay an initial $US600 million ($645 million), with provision to pay a further $US200 million, to acquire a 40 per cent interest in offshore blocks WA 315-P and WA 398-P from Karoon Gas.

The other shareholders in the acreage are ConocoPhillips and PetroChina.

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ConocoPhillips is also a partner with Origin in the Queensland export gas project it is developing, with first gas to be shipped in 2015.

The decision to buy into offshore Western Australia follows disappointing results from Origin's international oil and gas exploration program to date, with wells drilled in East Africa and also off Vietnam.

Mr King said Origin is increasingly being asked by investors what its growth prospects are once its Queensland gas export project is fully operational. The first gas is expected to be shipped from mid-2015 with the project expected to reach full capacity in 2017-18.

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By that time, work will be well advanced to decide which is the best way to tap the resource contained in the two Browse Basin blocks Origin is buying into from Karoon Gas, Mr King said.

While so-called 'floating' LNG, where a ship-board processing unit is used to process the gas for loading onto carriers for shipment abroad, may be the most cost effective option since it avoids the high cost of piping the gas ashore for processing, other development options could emerge, he said.

In particular, ConocoPhillips is a partner in the nearby Bayu Undan oil and gas field which already pipes output to Darwin for processing.

By 2020, one option could be to pipe gas from the Browse Basin acreage to the pipeline which feeds gas from Bayu Undan to Darwin, which could provide be a lower cost development option.The Poseidon field is located in "one of Australia's most significant hydrocarbon regions", Mr King said.

The deal with Karoon is priced at less than $US3 a barrel.

''To us, it's clearly a very sensible proposition'' to buy into a de-risked asset, he said, given the long time frame for a project to go from initial exploration through discovery to development.

Mr King said the other partners in the acreage have the right to acquire the Karoon equity, so that it will take two to three months before Origin knows whether the deal will be finalised.

As a result, any prospective share issue will not proceed until the time of the group's full year to June results, which are released in August. For Origin, the expansion into the Browse Basin follows a more recent move into the Beetaloo Basin in the Northern Territory and the Cooper Basin as the group prepares for the flow of cash from the start up of its Queensland gas project.